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Big deals, little cash for HP's e-services

The computer maker's "e-services" plan has helped it seal deals with Wal-Mart and others, but the initiative for powering the Internet isn't yet making much money, executives say.

Hewlett-Packard's "e-services" plan has helped it seal deals with Wal-Mart and others, but the initiative for powering the Internet isn't yet making much money, executives said today.

"We are pleased to report our e-services initiative is opening new doors for us," said HP chief financial officer Bob Wayman in a conference call today. One of those doors was at Wal-Mart, which signed a multimillion-dollar deal with HP to provide interactive services on the company's Web site, HP executives said.

However, the effect of e-services on revenues and profits so far is "still pretty small," said Steve Pavlovich, director of investor resources.

As part of its e-services push, HP has been investing in companies, buying them outright, or giving them servers in exchange for a percentage of the revenues they generate. It's an effort to get a cut of e-commerce transactions, not just sell the hardware, software, and services that let companies engage in e-commerce.

HP has inked several e-services deals with companies such as Ariba, Broadvision, Bea Systems, Security First Technologies, and others. HP will disclose another e-services partner tomorrow at its HP World show, company executives said.

One crucial technology of the e-services plan is its e-speak software, which will power sophisticated transactions that glue together multiple businesses and allow customers to find services they need on the Internet. HP is releasing the technology for free and as open source in an effort to encourage its rapid adoption.

One part of HP's vision for the future is selling more computers that power e-services. But that plan has been hampered by delays in its N-Class servers, its new midrange servers running the Unix operating system.

"Income from Unix servers was disappointing due to the delay in shipping of N-Class servers," Wayman said when discussing the company's third-quarter earnings today.

The slower N-Class sales rippled over to HP's services business, Wayman said. "A lot of the services activity that we end up booking and providing is related to the high-end server performance," he said.

Though HP had a very strong quarter selling PCs and printers, the company's decision to dump EMC as the company to provide high-end storage products was, as expected, costly.

"The most notable weakness was that enterprise storage revenues were down," Wayman said, "but we have no doubt that the decision to change direction in storage was a good one."

Though the change in storage lineup hurt revenue, unit shipments in July rose to within 20 percent of their level before the EMC divorce, HP said. "We're ahead of plan on this right now," one HP executive said.

HP also has decided to stop selling midrange storage products from Data General, a company that EMC has agreed to acquire, executives said.

Also in the earnings conference call, HP said it incurred a one-time expense of $60 million to split off it its Agilent Technologies business. According to the current schedule, Agilent will begin standing independent operations November 1, the first day of HP's next fiscal year.

Those expenses will increase to an estimated $160 million in the fourth quarter, Wayman said. The expenses are "largely professional fees that relate to the separation," such as legal, accounting, and consulting costs and the expenses of transferring assets and arranging new benefits plans.

Overall, HP said it expects its revenue growth to lie between 10 and 13 percent for its fourth quarter, the company said.